I ditched corporate America in 1994 and started a management consulting and venture capital firm (http://petercohan.com). I started following stocks in 1981 when I was in grad school at MIT and started analyzing tech stocks as a guest on CNBC in 1998. I became a Forbes contributor in April 2011. My 11th book is "Hungry Start-up Strategy: Creating New Ventures with Limited Resources and Unlimited Vision" (http://goo.gl/ygaUV). I also teach business strategy and entrepreneurship at Babson College in Wellesley, Mass.

Marissa Mayer Flushes $81 Million More Of Yahoo's Cash And Stock For David Karp

Tumblr founder David Karp (L) poses after a news conference with Yahoo CEO Marissa Mayer (R) following Yahoo's acquisition of Tumblr in Times Square on May 20, 2013 in New York City. (Image credit: Getty Images via @daylife)

After paying Tumblr’s founder $250 million in May, YahooYahoo CEO Marissa Mayer decided that was not enough to keep from “screwing up” the deal. So on August 9, Yahoo offered Karp $81 million more to stay at the company for four years. This personnel move will not pay off in higher Yahoo revenues and profits.

Why would an entrepreneur want to spend four years as a middle manager at a shrinking dinosaur that just paid him $250 million? It is surely not to suffer the indignity of going from being king of the hill in a start-up to being tasered by the frustrations of conforming to big company culture. It must be the money.

To be sure, I am not saying that Yahoo’s shares will stop rising. Since Mayer took over as CEO, its stock has risen 73%. And these spiking shares certainly reflect something other than Yahoo’s improved financial performance.

After all, Yahoo revenues have fallen 7% under Mayer as has its market share – for example, comScore reported that in June 2013, its core search market share fell 0.5 percentage points to 11.4% — while Bing gained the same amount and Google controlled nearly 67% of the market.

Since Yahoo’s shares are unhinged from its financial performance – the only possible explanation for the rise in its shares is something else. Some have speculated that Yahoo’s share price rise reflects the growing value of its stake in Alibaba. Perhaps others thought that hedge fund honcho, Dan Loeb, would arrange a sale of the company. But Loeb left Yahoo’s board after Yahoo bought back his shares.

Unless Karp and Mayer can defy well-established differences between a big public company and a tiny start-up, this move is likely not to add to Yahoo’s financial well-being. What are these differences? In a publicly-traded company, the CEO is responsible for key decisions – the same as in a start-up. But this move pays Karp as if he was Yahoo CEO, even though he is not.

Yahoo is buying four years of an executive who has built a company with no revenue, who lacks experience working in a big company, and who will be a middle manager with diminished power.

Before Yahoo acquired Tumblr it had no revenues and was burning through cash at a rapid clip. Its acquisition by Yahoo has caused many of its users to flee because they do not want to be associated with stodgy Yahoo. Nor would companies want to run ads next to much of its dodgy content.

Running Tumblr as part of Yahoo is very different than as an independent company.

Karp will lack the control that he had while running Tumblr on his own. If he wants to hire people, he will need to persuade Mayer that spending on his business is a better use of corporate resources than on other Yahoo businesses that generate actual revenues and profits.

How will Mayer be able to justify such spending to Yahoo’s board? And what happens if Karp and Mayer have different objectives for Tumblr? For example, what if Karp wants to give away the service and not advertise so it can increase the number of users while Mayer wants to focus on selling as many advertisements as possible to Tumblr users?

If Karp gets to do what he wants, Tumblr will continue to be a cash sink for Yahoo. If Mayer wins that battle, Karp will surely be demotivated. Moreover, the advertisements that Yahoo decides to push onto Tumblr’s users may drive away even more of them.

Finally, there is the basic problem of Karp’s motivation. In most deals in which big companies acquire start-ups, it is understood that the entrepreneur will leave after a transition period to go on and work on another venture.

That is probably what he wanted to do that after he got his $250 million in May. It took only $81 million to convince Karp to stick around to help Mayer make it look like Yahoo would not screw up its acquisition of Tumblr.

The question in my mind is whether four years from now Yahoo will be able to tout a boost in revenues and profits that flowed from its investment in Tumblr and Karp.

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What a great article backed by facts! Tell me when did Yahoo! post the numbers of users who ‘fled’ Tumblr because Yahoo! bought them?? How do you know that $250M is the exact amount and that the original purchase agreement didn’t include an $81M payment? And that Karp doesn’t mind being the brand manager of Tumblr a baby he created and may like to see it grow up? Why can’t he invest in other start-ups while at Yahoo! ? Did you see the agreement? And why wouldn’t Yahoo! leave Tumblr alone as promised to help it flourish and get monetized? Sounds like your short is not paying off? Core search business shrinking, so what about the other business endeavors and purchases that are planned, are you privy to the business plan moving forward on how Yahoo! plans to use the resources they purchased? Articles based on speculation and not fact always get me.

If Yahoo had a lick of sense at this juncture of the game. They would sell off Yahoo Answers to another Company. Include the Software and let this dying white elephant seek its own level of destruction.

good call today! lol did you ever think of another career? it takes time to turn around a company like yahoo…. she now has the talent, give it another 3-4 quarters and yahoo will be back up to $40.00 but who knows where you will be!

This is a very simple “puzzle” to solve: Mayer is looking at Yahoo’s stock price under her watch and seeing investor-enthusiasm continuing even in light of Yahoo’s shrinking revenues. How could this be…?

The “trick” Mayer has discovered is to keep-on acqui-hiring “cool” start-ups and entrepreneurs like Karp to give Yahoo some of Facebook’s or LinkedIn’s appeal.

By the time Yahoo’s investors finally wake-up and realize they’ve been had (e.g., Yahoo’s revenues still falling), Mayer would have collected nearly half-a-billion dollars in compensation to keep-up with her “rival” Sheryl Sandberg at Facebook… By that time she might even have departed Yahoo for a new CEO spot at ….(well, you complete this one).

I left Google because of all the calls to my business line. I have never hated anyone they way i hate Google. I’m all Yahoo now . And i love it. I pretty much spend everyday telling people what low life scumbags Google is. Google suck’s. And at least Yahoo has a hot CEO . Unlike Google’s old ugly old men that think we need them more then they need us. I am also going to start using some of Yahoo’s pay services. Google can go die some where for all i care.

Lord, this article was about as banal as my first business class. We are talking about a man who got $200 million and then another $84 million for his company. And how he is going to be less powerful after a takeover from a larger business……who cares. He will probably work 10 days a month and come in whenever. Hes worth hundreds of millions!